■įor more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.Valérie Mignon is scientific advisor to the CEPII and co-managing editor of the academic journal International Economics (Elsevier). Without it, the government’s lofty goal of getting rich quick may prove beyond its reach. All of that makes reforming the domestic private sector and the financial system paramount. As Vietnam develops, sustaining rapid growth from exports of foreign companies will become increasingly difficult, and the tension between staying open to foreign investment and promoting national champions will become more acute. But no country has become rich through remittances alone. The setback from covid-19 aside, it might seem hard not to be rosy about a country that appears to be in the early stages of emulating an East Asian economic miracle. “If I were Korean, I might have gone back in the 1980s, if I were Chinese I might have gone back in 2000.” Its successful diaspora makes Vietnam one of the largest recipients of remittances in the world $17bn flowed in last year, equivalent to 6% of GDP. He returned to Vietnam with his own family in 2004. His family moved to America in 1977, where he was educated and worked in consulting and finance. “There aren’t a lot of economies that are experiencing the sort of thing that Vietnam is,” says Andy Ho of VinaCapital, an investment firm with $3.7bn in assets. The economic boom has encouraged its enormous diaspora to invest, or even to return home. Vietnam may also hope to rely on another source of growth. (By contrast, China’s trade policy, which prefers broad but shallow deals, does not constrain domestic policy in quite the same way.) It must extend support to foreign firms that make cars in Vietnam, too. In August, state media also reported that the government was considering reinstating a 50% reduction in registration fees for locally built cars that expired last year.īut the country’s membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and a range of other trade and investment deals, means that it cannot offer preferential treatment to domestic producers. VinFast benefits from a bevy of tax reductions, including a large cut in corporation tax for its first 15 years of operation. In July it announced that it had opened offices in America and Europe and intended to sell electric vehicles there by March 2022.įostering national champions while staying open to investment is not easy, however. In July the company’s Fadil car, which is based on the design for Opel’s Karl make, became Vietnam’s best-selling model, beating Toyota’s Vios. The group’s efforts to break into finished automotive production through VinFast, its carmaker, may become important for the economic development of a country that is usually known for intermediate manufacturing. VinHomes, its property arm, is Vietnam’s largest listed private firm by market capitalisation. In VinPearl, VinSchool and VinMec, it has operations that spread across tourism, education and health. Vingroup, a dominant conglomerate, is the most obvious candidate. ![]() The government is “trying to create national champions”, says Le Hong Hiep, a senior fellow at the ISEAS-Yusof Ishak Institute in Singapore, and a former Vietnamese civil servant. To fire up the private sector, the government wants to nurture the equivalent of South Korea’s chaebol or Japan’s keiretsu, sprawling corporate groups that operate in a variety of sectors. Research by academics for the Centre for Economic Performance at the London School of Economics also suggests that productivity gains in the five years after Vietnam joined the World Trade Organisation in 2007 would have been 40% higher without state-owned firms. Whereas foreign companies can easily access funding overseas, the average interest rate on a medium- or long-term bank loan in Vietnamese dong ran to 10.25% last year. ![]() Banks make up for that unproductive lending by charging other domestic firms higher rates. But they still have an outsize effect on the economy through their preferential position in the banking system, which lets them borrow cheaply. Their importance in overall activity and employment has shrunk (see chart 3). Part of the drag on domestic enterprise comes from state-owned firms.
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